FinancialGuy Writes!

Regular readers will know that FinancialGuy has a “bee in his bonnet” about the Innovation Union. This is largely caused by a sense of despair. It seems clear that for Europe to build the economy that we need to see, an economy that can pull us from the fiscal crisis, much more needs to be done. The ideas are good, but the implementation seems to be much less than required.

Therefore, it seems like a good time to ask a few questions about the rules that we currently have and the rules that we need.

In this interview, I ask Dr Erkki Ormala, President of DIGITALEUROPE, about the importance of digital products in the Innovation Union and the role of the Digital Agenda for Europe.

FinancialGuy: How important do you think that the Innovation Union and Digital Agenda strategies will be for the future of the European economy?

Erkki Ormala: DIGITALEUROPE fully supports both. They are two pillars around which Europe’s competitive future will be based. But progress has been very slow – the world is not waiting for Europe.

We think that slow progress is because neither the Innovation Union nor Digital Agenda are high enough on the agenda of the EU. It is easy to understand why after the financial crisis we have experienced, but the digital technology industry sector has proven that the current technological changes offer Europe a huge opportunity. We believe that the Digital Single Market is vitally important in assisting Europe to find a way out of the current fiscal crisis.

FinancialGuy: Your organisation, DIGITALEUROPE, is keen to see a Digital Single Market for Europe. What exactly do you mean by this and why do you think it will be beneficial?

Erkki Ormala: The Single Market in Europe is over 20 years old and has proved to be a cornerstone of the economy. We think that there is the potential for the Digital Single Market to be just as important. But at the moment, digital services are limited to individual member states. There are lots of barriers and a long list of issues to overcome. These issues prevent European companies from competing with American and Chinese firms. They are able to launch into very large markets and we think that the same ability across Europe will be a great help to European companies.

In fact, analysis suggests that if we have a Digital Single Market by 2015, it will be possible to create €500 billion by 2020 in growth for the European economy. That is roughly €1,000 per EU citizen!

The end problem is that companies prefer to launch products and services in the United States to access their large market. Once they have done this, they come back to Europe to launch. By then, the damage is done. These companies have established themselves in the United States and as they grow and scale up their businesses, almost all of the newly created jobs will be in North America.

FinancialGuy: The speed of development in online and digital technology is amazing as we all know, but the EU framework seems to be very slow in comparison. Is this real and if so, why?

Erkki Ormala: There are a number of barriers to be lifted – things like consumer rights, privacy and copyright issues – but currently, these issues fall under different authorities within the member states and different departments within EU institutions. These wide range of departments have differing interests. This has led people to focus on what policies ‘’cannot be touched’’ rather than what can be achieved. This has resulted in a stalemate. If we want to create a real digital framework, everyone will need to sacrifice something.

FinancialGuy: In preparation for this interview, I watched a video of you discussing copyright levies and collecting societies. Why is your organisation so interested in levies in particular?

Erkki Ormala: DIGITALEUROPE is interested in this area because without reform, the Digital Single Market cannot proceed. There are three main areas that need to be looked at:

First, the current rules mean that licensed copyright content systems work differently from one member state to another. This puts a massive barrier to distribution in place. These complex and non transparent rules also mean that compensation of the copyright holder is different from member state to member state. European consumers, companies and artists all suffer because these rules are cumbersome and unfair to each of the stakeholders and so we all lose in the current scenario.

Second, the control of distribution of fees from copyright, by Collecting Societies, is not transparent and lacks the appropriate checks and balances to ensure proper governance. Consumers are expected to pay twice to collecting societies – once in the form of levies as applied to digital products that may or may not be used to access copyrighted material and a second time they pay an additional fee in the form of a license, if and when they actually use a digital device to access digital content. In this way consumers carry an unfair burden – it is not necessary for them to carry this burden in the digital age when technology that has the capacity to accurately track and distribute royalties to the rights holders is openly available.

Thirdly, many of the copyright levy rules date back to the analogue era when private copies could be remunerated by a tax on blank tapes. Now the system is arbitrary and designed to be impossible to track.

This means that people who are not making pirated copies or are buying legal downloads pay extra. They must pay a digital tax when they purchase a product and then then pay again when they change devices and a third, fourth or fifth time when they access digital content. And of course, the rules regarding copyright levies are different in every member state. So citizens in France can pay significantly more digital tax than citizens in another member state like The Netherlands.

As I said earlier, without reform, these rules make a Digital Single Market impossible. One good example is if we look at the different uptake of online music in the US and in the EU. Or, at the painfully low ratio of cross-border e-commerce in the EU to take the full measure of the damage inflicted on European business and consumers by policymakers who have yet to realize that the shift from analogue to digital is behind us.

FinancialGuy: There must be a wide range of interested parties! What sort of reform are you hoping to see and why?

Erkki Ormala: We would like to see a balanced reform. We would like to see European artists able to fully enjoy the benefits of digital technology to create and distribute their production. We would like to see European consumers enjoy the legitimate digital content of their choice anytime anywhere on the platforms they like best. For this to happen, we think reforming copyright levies is a must. Decision makers have to take bold moves to put in place the necessary changes that ensures that Europe moves into the digital age and can fully take advantage of the economic benefits as consumers, businesses and artists.

FinancialGuy: Thank you Dr Ormala. This has been an interesting look into some of the things holding back parts of the Innovation Union strategy.

If you would like to read more, please visit the DIGITALEUROPE website.

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